The USDJPY is trading at new session highs and in the process is testing a downward sloping trend line and a horizontal line of swing highs and low on the hourly chart. We are trying to move above that area now (above 115.195)
Be aware that if there is more momentum higher on the break, the 50% at 115.58 is the next target, followed by the 115.85 area. At that level is the 100 and 200 bar MA on the 4-hour chart both come in at that level. That combination should stall a rally.
US bond yields – unchanged at the start of the NY session – area higher. The 10 year yield is up 4 basis points. The US housing data was ok and the initial claims and Philly Fed index were also favorable. So the dollar bulls are more comfortable again.
As cautioned earlier, following headlines about potential comments from UK PM Theresa May calling for a “clean and hard” Brexit in her Tuesday speech, cable has plunged to a 1.19 handle in very early (and illiquid) AsiaPac trading. This is the lowest level for sterling relative to the dollar since the October flash-crash.
It appears the New Zealand FX traders are active early, having pushed the pound as much as 1.6% to $1.1986 in Auckland on Monday, the lowest level since Oct. 7.
“The prospect of another speech from PM May is likely to see sterling yet again on a something of a roller-coaster,” Jeremy Stretch, head of Group-of-10 foreign-exchange strategy at Canadian Imperial Bank of Commerce, wrote in an e-mailed note before markets opened. “Fresh sterling lows versus the dollar seem almost inevitable.”
Meanwhile, in an ad hoc note from the DB FX team, the German banks sees much more downside: “in terms of market implications we see today’s press reports as a material negative should they prove accurate and a catalyst for the rmarket beginning to price hard Brexit. As per our recent FX Blueprint publications, we see a deterioration in political rhetoric around Brexit as a key catalyst for further sterling weakness and see the large terms of trade shock from full exit from the Single Market consistent with GBP/USD at 1.06 or EUR/GBP close to parity respectively.”
Incidentally, should cable tumble to a full “hard Brexit” level of Euro parity, we full anticipate that the FTSE100 will rise above 8,000 in no time.
The dollar fell against the yen in four of five sessions of the CFTC reporting period that ended on January 10. Speculators in the futures market covered shorts and took profits, or at least liquidated long positions.
Nearly 12k long yen contracts were liquidated, leaving the bulls with 26k contracts. This is the smallest gross long position since February 2014. The bears covered almost 19k short yen contracts, leaving 105.8k.
There was one other significant (10k or more contracts) adjustment in gross speculative positioning in the futures market. It was the bulls liquidating 11.1k contracts to reduce the gross long position to 28.4k contracts. The Canadian dollar was in a strong appreciating trend. It has risen in 11 of the past 15 sessions, but only in three of the period’s five sessions.
The bulls cut exposures in both the yen and Canadian dollar. It was part of a larger pattern. Of the eight currencies we track, there were three small exceptions. The gross long euro position rose by 5k contracts to 134.7. The gross long sterling position rose by 1.3k contracts to 56.7k. The bulls added 1.6k contracts to their long Mexican peso position, lifting it to 23.9k contracts.
Another pattern that continued is that the speculators are not as bearish the euro on balance as one might expect given that dollar appreciation has become consensus. The net short position in the euro has been trending lower, and it fell by a little more than 4k contracts in the latest reporting period to 65.8k contracts. This is the smallest net short position since last July.
The 10-year yield eased in three of the five sessions of the reporting period, but this did not deter the bears who continued to extend their record net and gross short position. They added 33.7k contracts to the gross short position, raising it to 849.8k contracts. The bulls pealed off another 6.1k contracts, leaving them with a still substantial 455.2k contracts. As a consequence of the gross position adjustments, the net short position rose to 394.7k contracts from 344.9k.
Speculators in the oil futures market trimmed the gross long position by 3.9k contracts to 604.3k. The bears added 2.7k to the gross short position, lifting it to 170.7k contracts. As a result the net long position eased to 433.6k contracts, a loss of 6.5k.